title: Analyses of direct and indirect impacts of a positive list system on pharmaceutical R&D investments.
abstract: BACKGROUND
  The South Korean government recently enacted a Positive List System (PLS) as a major change of the national formulary listing system and reimbursed prices for pharmaceutical products. Regardless of the primary goal of the PLS, its implementation might have spillover effects by influencing the pharmaceutical industry's research and development (R&D), potentially leading to a variety of responses by firms in relation to their R&D activities.
  
  
  OBJECTIVE
  We investigated the spillover effect of the PLS on R&D investments of the pharmaceutical industry in Korea through both direct and indirect channels, examining the influence of the PLS on sales profit and cash flow.
  
  
  METHODS
  Data from 9 years (5 before and 4 after PLS implementation) were drawn from the financial statements of firms whose stocks were exchanged in 2 official stock markets in Korea (526 firms) and additional pharmaceutical firms whose financial performance was officially audited by external reviewers (263 firms). Longitudinal analyses were conducted, using the panel nature of the data to control for permanent unobserved firm heterogeneity.
  
  
  RESULTS
  Our results showed that the PLS was directly associated with R&D investments. In contrast, its indirect impacts stemming from the influence on sales profit and cash flow were minimal and statistically nonsignificant. The gross impact of the PLS on R&D investments increased moving further from the enactment year; R&D investments were reduced by 18.3% to 25.8% in 2009-2010 (compared with before PLS implementation) in the firm fixed-effects model. We also found that such negative direct and gross impacts of the PLS on R&D investments were significant only in firms without newly developed chemical entities.
  
  
  CONCLUSIONS
  Considering the gross negative impact of the PLS on R&D investments of pharmaceutical firms and the heterogeneous response of these firms by the R&D activities, governmental efforts of cost-containment may need to consider the spillover impact of the PLS on pharmaceutical innovation.
authors.affiliation: College of Pharmacy and Gachon Institute of Pharmaceutical Research, Gachon University, Incheon, South Korea.
authors.forename: Euna
authors.initials: E
authors.lastname: Han
authors.forename: Tae Hyun
authors.initials: TH
authors.lastname: Kim
authors.forename: Myung Jin
authors.initials: MJ
authors.lastname: Jeung
authors.forename: Eui-Kyung
authors.initials: EK
authors.lastname: Lee
mesh_terms: D003363:Cost Control; D055808:Drug Discovery / Q000191:economics*; D004345:Drug Industry / Q000191:economics* / Q000331:legislation & jurisprudence / Q000458:organization & administration; D005569:Formularies as Topic; D006801:Humans; D007449:Investments / Q000191:economics* / Q000331:legislation & jurisprudence / Q000458:organization & administration; D056910:Republic of Korea; D012106:Research
keywords: Positive List System; R&D investments; South Korea; pharmaceutical industry